Gulf Coast Tours Currently Has a Weighted Average Cost of Capital

Multiple Choice

Gulf Coast Tours currently has a weighted average cost of capital of 12.4 percent based on a combination of debt and equity financing.The firm has no preferred stock.The current debt-equity ratio is .47 and the aftertax cost of debt is 6.1 percent.The company just hired a new president who is considering eliminating all debt financing.All else constant, what will the firm's cost of capital be if the firm switches to an all-equity firm?

A) 15.45 percent
B) 12.92 percent
C) 12.89 percent
D) 13.37 percent
E) 15.36 percent